What the rate rise will mean to homebuyers

The interest rate increases announced this week by Reserve Bank Governor Lesetja Kganyago will translate, for existing homeowners, into an increase of some R127 per month on a 20-year home loan of R785 000 – the current national average approved bond amount, according to SA’s biggest mortgage origination group BetterLife Home Loans.

The difference for first-time buyers will be R98 per month on the average home loan of R600 000 that is currently being approved in this sector of the market, notes BetterLife Home Loans CEO Shaun Rademeyer. 

The increase of 25 basis points is the first since July 2014 and takes the repo rate to 6% and the variable home loan interest rate to 9,5%. It will thus push up the minimum monthly instalments on home loans by R16 for every R100 000 borrowed.

“Meanwhile, new buyers will no doubt find it more difficult to qualify for home loans, even if they are able to borrow at prime,” says Rademeyer.

“The household income requirement for the average loan will rise from around R24 000 per month to around R24 400 – a R400 a month increase that may be difficult to achieve when the repayments on other debts have now also been increased and wage increases are low.

“Governor Kganyago reported today that the pace of wage growth had slowed to 4,1% in the first quarter of this year and that the economy was only forecast to grow by just over 2% this year.”

He says that with consumers also known to be under increasing pressure from rising food and utility costs, the banks can be expected to maintain strict credit control criteria now to ensure borrowers do not become over-indebted and will be able to manage all their debt their repayments at the higher interest rate level.

And in response to today’s announcement, he advises, prospective homebuyers would be well-advised to obtain pre-qualification for a home loan before they start looking for a property, so that they know what they can realistically afford.

They should also try to save a deposit of at least 10% of the purchase price, “not only because it will make it easier for them to qualify for a loan, but because it will give them some financial leeway if rates continue to increase over the next two years as expected”.

And finally, Rademeyer says, they should apply for their loan through a reputable mortgage originator such as BetterLife Home Loans, to ensure that their application is submitted correctly and properly motivated so that they have the best chance of securing an approval.

“At BetterLife, our statistics show, we are currently able to obtain approvals for 75% of the applications we submit, which compares very well with the current overall approval rate of 50% of applications.”

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